No Thrills – Dormancy in NFA Accounts

MicroSave is undertaking a series of research studies to support the financial inclusion agenda in India and explores:

The financial instruments and channels currently used by the poor to save and remit money;

Needs/perceptions of the low income segment for savings and remittance services;

Reasons for the current dormancy amongst no-frills accounts;

The cost to poor customers of using existing channels and their willingness to pay for improved/more convenient channels;

Optimal outlets/organisations to act as banking correspondent agents; and

The cost to banks, technology platforms and different banking correspondents of delivering no frills accounts and other services.

Funded by Omidyar Network, a variety of research programmes are underway. The first of these is the study on Dormancy in No Frill Accounts (NFA). The research aims to understand the reasons for widespread dormancy in No Frills Accounts opened through various service providers like public and private sector banks, RRBs and business correspondents. The research was conducted in the states of Uttar Pradesh, Rajasthan and Tamil Nadu and involved focus group discussions and individual interviews with NFA customers and bank staff.

Some of the key findings are: Despite an impressive number of NFA account openings, many are only used for withdrawing government benefits and wages under NREGA. The majority are often inactive or dormant. In most areas, only 20% or fewer use their accounts for small savings, the NFA's original intention. Banks lose money on these accounts (estimated costs are Rs.13.4 per transaction and Rs.50.45 for account opening, or Rs.250 total to open and maintain accounts). Not surprisingly, bank service is often unsatisfactory - and less encouraging for customers and extending NFA use.

To read through our state wise reports, please click on the links below: